Economic Myths #2 – Consumption Boosts Growth

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The belief that economic growth is boosted by consumption is based upon such a simple misunderstanding that a realisation of the truth will cause one to question why such a simple fact evaded you in the first place.

The confusion is based on a conflation of the desire to consume on the one hand with the act of consumption on the other. It is true that all economic growth, and all economic activity, is motivated by the desire to achieve consumption – in other words, to devote scarce resources in order to satisfy our most highly valued ends. Without any desire to consume or to satisfy any ends there would never be any economic activity whatsoever. The act of consumption, however, does not in and of itself fuel any economic growth. For consumption is the result of growth – i.e. of increased production – and not the initiator. Consumption is what we reward ourselves with once we have achieved growth and not that which we do in order to begin it. Stated in its simplest way you cannot consume a good unless it has first been produced.

At any one moment in time there is an array of produced goods available to us. Each of us faces a basic choice as to what to do with these goods – consume them now, or turn them into productive capital goods that will yield a greater output of consumption goods in the future. If we choose the first path – consumption – all we do is reduce the number of goods available to us and we are left with less. We may have achieved immediate satisfaction but we now have fewer resources left with which to produce more in the future. If I burn a log of wood to keep warm I cannot then use it as building material later. Rather it is gone forever and I will now have to labour in order to search for fresh building materials if I am to make good this loss. A farmer who decides to eat the seeds for crops in the spring will then have nothing to sow and come harvest time will have barren and empty fields rather than lush acres full of wheat. Beyond the point of providing nourishment and sustenance to the human body the act of consuming of these goods will not provide any growth. Consumption, for the most part, is the destruction of what we have. Growth is the transformation of what we have into something that will produce more for us in the future. If we choose the second option – that of turning our goods into productive resources – rather than destroying the resources available to us we will invest them in productive enterprises that raises the yield of consumer goods in the future.

The key to promoting growth, therefore, is not to encourage the act of consumption which equates with an act of destruction. Rather it is to encourage production and a direction of a greater proportion of our resources available today towards saving and investment so that we may consume more in the future. This is particularly important following a bust that results from a boom or bubble inflated by credit expansion. With so many malinvestments left starved of resources the best thing we can do to minimise the pain is to increase the proportion of saving and investing so that at least some of the doomed projects may realise a degree of viability. Instead our economic lords and masters do the precise opposite and encourage us to borrow, spend and consume which only exacerbates the losses experienced by those projects that were started in the boom. Growth must begin with saving, sound investment and production which is then rewarded by greater consumption. Consumption will never lead to growth and it is important for Austro-libertarians to point out this grave fallacy.

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Libertarian Law and Legal Systems Part Five – Property Rights, Trusts, Unjust Enrichment and Other Considerations

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In this final part of our survey of libertarian law and legal systems, we will cover some other areas of legal liability and some miscellaneous considerations before being in the position of sketching a final map of libertarian law.

The Standard and Burden of Proof

In contemporary legal systems the requisite standard of proof differs depending upon the type of action. The imposition of criminal sanction requires proof to be established beyond a reasonable doubt whereas civil liability requires the same to be established only by the balance of probabilities. The reason for this, presumably, is that criminal sanction is viewed as being a greater incursion of one’s liberty than civil remedies such as furnishing compensation. Not only could one be locked up in prison but one is usually lumbered with a criminal record so that it is impossible to disassociate oneself from the illegal act for at least a period of time. Furthermore, the traditional replacement of the victim by the state in the prosecutorial process of criminal trials is, no doubt, deemed to require stricter due process to protect the individual from persecution by the government.

Much of this is irrelevant from a libertarian point of view. Although we have not discussed in detail the different remedies that flow from criminal liability on the one hand and civil liability on the other, the enforcement of all laws in a libertarian society is an incursion against an individual’s liberty. Taking someone’s money in order to furnish compensation for a tort is as much an invasion of that individual’s person and property as locking him away for a crime. Low standards of proof would result in legal remedies themselves becoming de facto breaches of the non-aggression principle. Therefore, in order to legitimatise the proposed legal remedy it is likely that only the strictest standards of proof will be accepted by a libertarian legal system – even for tortious as opposed to criminal liability. In other words, the fact of physical invasion, the extent of the aggression and the corresponding intent of the defendant must all be established beyond a reasonable doubt, or some equivalent that the libertarian courts devise.

The initial burden of proof, properly, rests on the plaintiff and not upon the defendant, just as it does in our contemporary legal systems. It is up to the plaintiff to establish a prima facie case by proving the presence of aggressive behaviour – rather than for the defendant to establish the more difficult proof of its absence. It is the plaintiff who is alleging the existence of a conflict arising from scarcity; the defendant, for all he knows, may be just going about his daily life unaware of it. It is therefore up to the plaintiff to demonstrate the substance of that conflict. Although the old adage “innocent until proven guilty” is of greater relevance when one is faced with the imposition of legal liability by the state, it applies equally in a libertarian world. The alternative, where the plaintiff could pursue a case without having to bear any burden of proving his case and thus gain “compensation” merely on his say so would allow the pursuit and sustenance of all manner of frivolous lawsuits, transforming the law from a bulwark of justice into a vehicle for wealth redistribution. Upon the establishment of a prima facie case by the plaintiff the burden may shift to the defendant and it is then up to the latter to furnish defences or mitigating circumstances in order to either reduce his liability or absolve him completely.

Vicarious Liability

A rule that libertarian courts will almost certainly impose is that the liability should be of the true aggressor only and that any form of “vicarious liability” is unwarranted. This consideration normally arises when employees of an employer carry out an invasive act during their working day. For example, a workman who knocks a tool off of scaffolding striking a pedestrian below; or a lorry driver who runs over an old lady. Faced with a lone plaintiff who has borne an enormous loss the urge to make “the deep pockets” pay has often proved irresistible to courts. Holding employers vicariously liable for the acts of their employees, or “inflating” the terms of insurance contracts to make the insurer cough up, often ensures a greater chance of recovery for the victim rather than pursuing the employee or individual defendant who, alone, may possess few or no assets worthy of furnishing compensation.

There will be occasions when employers will be liable for their operations when those operations result in a tort; for example when employees are only following a procedure specified by their employer and the employee did not know any better – in other words, in cases where the employee is acting as agent for the employer. Employers are likely to lay down specific procedures and safety guidelines for their employees, the breach of which will demonstrate conclusively that the employee was at fault, although the greater hope of the employer will be to avoid any accident in the first place; a tortious situation may not generate any liability for the employer but it may nevertheless result in embarrassment and brand impairment when one’s company name is involved. Employers are also likely to specify in the contract of employment the situations in which he will be liable and those in which the employee will be liable so that the employee is highly aware of the situations in which he is operating as an agent for his employer and when he is operating as an individual. Generally, however, what will make the difference is where there is an operative intervening act of will by the employee that causes the aggressive act – an intervening act that diverts him from the normal course of employment and is a fresh act not commanded by his employer. If there is such an intervention by the employee then he is liable. A workman who drives carelessly in his employer’s van between jobs and strikes a pedestrian would be liable, alone, for that invasive act. It was he whose will directed the van into the path of the pedestrian. Simply because he was acting during his working day and with his employer’s property does not invoke any liability on the part of the employer. Applying a reductio ad absurdum to the contrary, would we permit an employee to pursue a criminal rampage and then throw the employer in jail simply because the employee was wearing his work clothes? If not then neither should we hold employers responsible for the less culpable acts of their employees. On the other hand, if the van had faulty brakes because the employer had chosen not to service the van, then the employer would be liable for any accident caused by this fact.

Personal Rights and Property Rights and Trusts

Roman Law made a distinction between the types of right or action available to a plaintiff – the rights in personam and rights in rem. This has survived into modern English law as being personal rights on the one hand and proprietary rights on the other. A personal right exists when an individual is owed a right by a specific person – i.e. the obligation by that specific person to pay a sum of money. The legal noose that you hold is round the neck of the individual and is not attached to any particular sum of money that the individual might pay over. A proprietary right, on the other hand, is over a specific piece of property regardless of its current possessor – your right is attached to that property and follows that property wherever it goes.

With libertarian law and its focus on property we must be, in the first instance, suspicious of this distinction. In the first place aren’t all rights in a libertarian world property rights and aren’t all people demanding the enforcement of their property rights? Secondly, don’t all rights and obligations exist between individuals and not between individuals and things?

The confusion stems from the way in which contemporary legal systems, possessing no rationale as to the concept of property, understand the meaning of “title”. The reason why rights and ownership claims over property arise is to avoid conflicts arising from scarcity – conflicts which take their substance as two or more people wishing to take ultimate control and possession of the property. Any one person at any time will have physical control and possession of the property and it is this person who has the de facto title to that property – what we might, for argument’s sake, term the possessive title. It is within his actual, physical power to dispose of that property as he wishes. However, when we say in a libertarian sense, that a person has “title” to property we mean this normatively – that the individual should have – i.e. is entitled to – possession and control of that property but may not necessarily have it at this moment in time. It is by comparing the possessive and normative titles – who does and who should have control and possession respectively – that we can determine who is violating the rights of whom, if at all. A creditor, for example, has a normative title to a sum of money on its due date; the debtor has possessive title. The debtor is required to relinquish possessive title to the creditor. If he does not do so then he is in violating the creditor’s normative title and may be subject to legal sanction.

In a libertarian sense, therefore, a person may have a normative title to property but this does not necessarily mean that he will be entitled to a proprietary remedy as understood by contemporary legal systems. In other words, he will not necessarily have a noose around a specific, earmarked piece of property in the debtor’s possession and will, instead, only have what is termed a “personal right”. After all, strict, proprietary rights may simply be unavailable. A defaulting debtor, for example, may owe money to numerous creditors yet have insufficient funds to pay all of them in full. The creditors cannot enjoy a proprietary title as the funds simply do not exist for them to have title over. All they have is the normative, legal force of the debtor’s obligation to transfer to them possessive title of a sum of money. Indeed, at least when it comes to the enforcement of debts to be paid in money, the whole distinction only really becomes relevant for practical purposes at the point of litigation when one is dealing with an insolvent debtor. Although we are not examining specifically bankruptcy laws in a libertarian world, we must assume that something akin to limited liability partnerships or corporations may exist and there will exist occasions when multiple creditors have to share between them an insufficient pool of assets in the debtor’s possession in order to extinguish as much of the debt as possible. Where, in such an instance, a creditor can only establish the equivalent of a personal right – i.e. no right over a particular set of the debtors’ assets – then he must take his place amongst all the other creditors, sharing out the assets that remain and must be content to write off the unfulfilled portion of the debt. Where, however, a creditor can establish a proprietary right, it enables him to ring fence that particular good in the debtor’s possession and prevent it from being parcelled out amongst the other creditors. One therefore leapfrogs ahead of everyone else to whom the debtor owes obligations. Such a creditor with a proprietary title is said to be a secured creditor. There is therefore a strong incentive for a creditor to attempt to establish a proprietary title over a specific piece of property in the debtor’s possession as it almost guarantees that his debt will be paid in full.

We might say, therefore, that in keeping with the libertarian understanding of property rights and titles, the distinction will be between a personal action on the one hand and a proprietary action on the other; the former being the suing of a specific person for a thing; the latter being the suing for a specific thing of a person. How will libertarian legal systems handle these types of action and in which cases will it recognise a proprietary remedy on the one hand a less exalted personal remedy on the other? What form will a proprietary remedy take?

Before we proceed with this discussion it is appropriate here to discuss the trust mechanism. A trust is a specific type of property arrangement. It is where the possessive title is held by one individual (“the trustee”) whereas the beneficial title is held by another (“the beneficiary”). The latter’s title is not a mere personal right over the trustee; rather, it is a full, proprietary title over the assets that form the subject matter of the trust and these assets are segregated from the trustee’s personal assets so that in the event of the trustee’s insolvency his creditors may not touch the trust property. A trust is not an independent causative event of legal liability such as a tort or contract; rather, it is the property arrangement that results from a causative event. For example, a contract may create an “express trust” in order for a trustee to manage property on behalf beneficiaries – for example, an investment trust or a charitable trust. On the other hand, courts may impose trusts – referred to as “constructive trusts” or the more bizarre “resulting trusts” – in response to wrongs or unjust enrichment. Where, for example, an individual aggresses against a person’s property, a court might hold that the aggressed party retains a beneficial title over that property and the property is therefore ring-fenced from the aggressor’s assets1.

It is possible, indeed likely, that the trust arrangement will remain in a libertarian legal system, both as purposeful arrangements in order to dispose of property in a prescribed way, or as the result of an outcome of litigation. Our interest here is with the latter – when and where are libertarian courts likely to award a proprietary remedy to the plaintiff and when will he gain a mere personal right? In order to discuss this with clarity, we ought to first suggest some terminology for the different types of titles that can exist over a piece of property:

  • Possessive Title – held by the person with de facto control and/or possession of the property;
  • Beneficial Title – a proprietary title that ring fences the property securely from the assets of the holder of the possessive title; this title is both de facto and normative and will be held only by the individual whom the courts deem should possess it;
  • Personal Title – a title that enables a person to use legal force to demand possessive title from the holder of the latter; the title is normative only; no property in the debtor’s possession is ring-fenced2.

Under pure libertarian theory, no aggressive act would be sufficient to transfer any title over property whatsoever to the aggressor and full proprietary title would remain in the hands of the plaintiff. However, as we keep stressing throughout this series, law and legal systems have to deal with the practicality of legal enforcement and recovery, the greatest consideration of which is cost.  What follows is likely to be the most sensible approach of libertarian legal systems to balance libertarianism’s approach to property on the one hand with practical considerations on the other.

Where the good that is the object of aggressive behaviour is non-fungible and exists as an independent, stand-alone, ring-fenced entity then the courts will award the plaintiff with a beneficial title to that property. For example, if A delivers a television set to B in advance of the payment of £100 for the set to which B agreed, possessive title of the television set passes to B. In the event of B’s default the court is likely to recognise A’s beneficial title over the television set. A’s right, therefore, extends over the television set and does not follow, for ever and a day, the particular person who presently has possessive title over the television set but may not do so in the future. The primary good that will usually subject to proprietary remedies will, of course, be land. Land is non-fungible, ring-fenced, easily identifiable and, also, immoveable – making the awarding of a proprietary remedy to the plaintiff the most desired and the most practical solution.

Where, however, the good is fungible and mixed with other, equally fungible units of the good so that it is neither independent nor ring-fenced then the court is likely to award the plaintiff only a personal title to that property – a right that follows the specific debtor and not the actual physical matter that is subject to dispute. The most common form of fungible good is, of course, money. If B pays A £100 in advance for delivery of a television set, that money is transferred into A’s bank account and is mixed with all of his other monetary assets. These will be used to pay other creditors and suppliers in the meantime before B’s delivery may become due. There is absolutely no way that, in the event of A’s default, it could be said that any specific quantity of notes, ounces of gold or whatever that B transferred to A were his, much less so if A has transferred a portion of those funds to pay other suppliers. The contrary would result in the absurd position where every single unit of currency would be tagged and tracked in and out of A’s possession, into his bank account, and out to third parties, then onto other parties and so. Especially as a period of time usually elapses before a legal action is pursued, one might have to go to the ends of the earth to pursue one’s actual money if it had been subject to hundreds of transfers in the meantime. Rather, the court is likely to hold simply that B possesses a personal title to £100 of A’s and it remains A’s obligation to pay that money across. A simple test of fungiblity is to ask whether the plaintiff would be satisfied with payment of any unit of currency or ounce of gold etc., or whether he does in fact demand the very units or ounces that the defendant took from him. If you are owed £10 you don’t necessarily want the very note that was taken from you – you just want any £10 note, or two £5 notes, or ten £1 coins, or whatever.

Gradations between these two extremes – non-fungible, ring-fenced goods on the one hand, and fungible, mixed goods on the other – will have to be dealt with on a case-by-case basis. For example, one television set may be like any other that is manufactured just like it and a person owed a television set may be happy to take any one. These television sets may be pooled in a warehouse and not yet allocated to specific customers; indeed, there might not even have been enough television sets produced to fulfil all of the orders. In such cases only personal titles may be awarded to the plaintiff. On the other hand, money can be easily ring-fenced by its deposit into a segregated account; other fungible goods such as shares may be held on trust by a manager for numerous investors, their proportionate share of the property remaining constant depending upon their contribution to the fund. These are the sorts of considerations that courts will be faced with when determining whether to award personal or proprietary remedies as the result of litigation.

Concurrent Liability

It is sometimes the case in contemporary legal systems that the same facts can give grounds for a plaintiff to bring an action under different areas of the law. For example, a plaintiff may be able to bring an action under contract or under tort. This possibility stems, once more, from the divorce of contemporary legal systems from any rationale as to precisely what it is that generates legal liability. Under libertarian principles it is only a physical invasion of the person or property of another that gives grounds for liability. Nothing else will suffice. Under libertarian law, a “contract” is not, strictly speaking, a causative event of legal liability. Rather, it is an area of the law that gives a body of rules for examining the property relations that exist between the parties. Once this is established, the only question that determines whether there is legal liability is if there is a physical invasion of property under those arrangements. The courts therefore face two questions when it comes to the determination of the liability of the defendant:

1. What are the property arrangements between the parties?

2. Having established these property arrangements, did the defendant commit an act of aggression against the property of the plaintiff?

If the case is one of a simple, unilateral wrong then the first question can usually be overlooked. It is assumed that whatever each party brought to the situation belonged to him. If A punches B then it is clear that the body of A belongs to A and the body of B belongs to B, barring some special circumstance. On the contrary, where A is trying to take property from B that B previously stole from A, A will adduce evidence that the property was rightfully his and the question of what the correct property arrangements between the parties are will have to be examined.

One particular area of the law where this question is quite important is product liability – specifically, products that turn out to be dangerous and cause injury, as opposed to products that are merely do not work or are not “fit for purpose”. In these cases, there is a contract between the parties for the transfer of the product. In the famous case of Donoghue v Stevenson, for example, the plaintiff purchased a ginger beer bottle from a bar. The bottle of ginger beer, unbeknownst to the plaintiff, contained the remains of a rotting snail. The plaintiff drank the beer and fell ill as a result of its contents and sued the defendant in tort.

At first blush, this case seems a little mysterious. For hadn’t the plaintiff purchased the bottle of ginger beer and hadn’t title over it passed to her? Therefore, at the point she was injured, did she not own the bottle and there was, therefore, no aggression on the part of the defendant? Indeed, it seems ironic that the seminal case in English tort law is one in which the plaintiff was injured by her own property3. The correct analysis of the case, however, is to examine the contractual relations between the parties in order to determine the property relations first. The contract was for the transfer of a bottle of ginger beer. It was not for a bottle of ginger beer containing a snail. Title to the ginger beer bottle containing the snail never passed and thus the injuries resulting to the plaintiff were caused by the property of the defendant. Hence the plaintiff could properly sue the defendant for an aggression. The case would have been different had the contract specified that all defects in the product were the responsibility of the plaintiff, or if the contract had been for “the object in front of the parties” and not for an object of any particular description. In such an instance, full title to the ginger beer bottle containing the snail would have passed to the plaintiff and she would have had no action as the injury resulted from her own property. While this is theoretically possible, of course, most vendors will be keen to specify the compensatory remedies available in the contract and the discipline of the marketplace is likely to prevent them from passing on liability for their errors wholly onto the shoulders of their customers. In principle, however, it demonstrates the importance of determining the property arrangements between the parties prior to any investigation as to whether there was any aggressive action.

Unjust Enrichment

It is with this understanding that we can proceed to examine the area of the law known as unjust enrichment. Usually referred to as the law of restitution, unjust enrichment is, like contract, not an independent causative event of legal liability but, rather another example of a type of property arrangement between the parties. It is appears in every situation that is akin to the mistaken payment of a non-existent debt. A owes B £500; he pays, in error, £1000 so that B has been “unjustly enriched” by £500. B is required to transfer the overpayment back to A.

For a long time in our contemporary legal systems discussion of unjust enrichment was buried in that of other areas of law, mostly contract. It is not difficult to see why as most cases of mistaken transfer will occur when there are pre-existing relationships between the parties. Indeed, a simple payment made in error or an overpayment is only the most basic case. Others include mistakes regarding the property that is the subject of a contract – i.e. A thinks he is purchasing a car and pays B for a car when B thinks he is selling a van and believes he is receiving money for a van.

Once again, lacking any rationale as to what should constitute the triggering causal event of legal liability, case law and academic writing has been divided between whether the plaintiff’s case is actionable because of some “unjust factor” on the one hand – that it would, in some way, be “unjust” for the defendant to retain the property – or because the mistaken transfer had an “absence of basis” on the other. Libertarian law should be able to transcend this debate. Our first task is to examine precisely which property arrangements arise under the fact of the mistaken payment; we then have to see if the defendant aggressed against property that belonged to the plaintiff. In all cases of unjust enrichment – whatever the facts from which the claim arises – there is, initially, no aggression. The payment is made freely and voluntarily by the plaintiff – he sends it into the defendant’s possession and voluntarily transfers to him possessive title of the property. The defendant in no way initiates any action that invades the person or property of the plaintiff. It is likely the courts will recognise that the normative title to the property remains with the plaintiff from the point that the “mistaken” transfer was made. It is not the defendant’s property – the fact of “mistake” itself reveals that the plaintiff made no transfer of the normative title to the property upon the defendant4.

Whether any situation akin to a “mistake” occurred will have to be judged from examining the actions and arrangements between the parties. Let us examine the simplest of cases – where the plaintiff alleges that there was a simple error of overpayment by him to the defendant. In order to determine the fact of mistake, the court would have to ask whether there a valid contract for the transfer of the sum; or whether it was a gift or donation. For example, if you are presented with an invoice from your phone company for £50 and you pay £100 this would, in most cases indicate that the overpaid sum was mistaken, unless the telephone company could adduce evidence that the plaintiff was making an advance payment for future services or (more unlikely) a gift or a donation.

Having established that the property still rightfully belongs to the plaintiff and not to the defendant, we then have to determine if the defendant aggressed against that property. The initial act of transfer by the plaintiff will not be, as we have said, an act of aggression by the defendant. However, anything else that the defendant does with that property – i.e. a fresh act resulting from the intervention of the defendant’s will – is, under our standard of strict liability for aggression, an invasion of the person or property of the plaintiff and the defendant is prima facie liable. If this occurs after the defendant realised the mistake then the case is straightforward – it is a clear and wanton act of aggression against the person or property of another and the case simply proceeds as an ordinary case of tort or crime. The difficulty, however, is what the courts should do if the defendant should make such an intervention of will before he realises that the transfer was mistaken. He could trade it, alter it, destroy it or otherwise dispose of it entirely innocently and only because the plaintiff voluntarily transferred the property to him.

It is likely that the courts, although sustaining the prima facie liability of the defendant based upon strict liability, will permit the defendant to invoke the mistake of the plaintiff in transferring the sum as a defence against all acts of aggression that occur between the point of transfer and between the point that the defendant realises the mistake. The precise latter point will need to be determined by the courts and the burden will fall on the plaintiff to adduce evidence of precisely when the defendant knew that receipt of the transfer was mistaken. This gives a clear incentive for plaintiffs to communicate the fact of mistake to defendants in a timely manner as the communication itself will bring forward the point that the defendant is made aware of it. Alternatively, if the defendant is a business, producing a statement of account would likely suffice as evidence of overpayment or mistaken payment in the simplest cases5.

Wherever the point at which the defendant becomes aware of the mistake, after this point he may not commit any act of aggression against the mistakenly transferred property and is required to return it to the plaintiff. For any acts before this point he will be protected.

How can we justify this defence? The first and simplest answer is the plaintiff’s material contribution to the act of aggression by sending his property into the possession of the defendant. It seems unjust to hold the defendant liable when he has had the property of the defendant forced upon him. Indeed, an alternative analysis might even hold that the unjust enrichment is itself an act of aggression on the part of the plaintiff. This can be contrasted with the situation where the defendant commits an act of aggression against the plaintiff’s property and each party is, similarly, unaware of it until a later date. Here the lack of awareness will not absolve the defendant as the act of aggression was wholly of his making. Second, consider the situation where the mistake is, in fact, never realised by the parties. What happens then? Legal rights and obligations arise only when individual parties recognise a conflict arising from scarcity. Absent any realisation of a conflict then there is simply no substance for legal rights and responsibilities. During the point between the transfer and the realisation of the mistake, each of the parties believes that everything is sound and nothing untoward has occurred; both parties go about their daily lives as if nothing had happened. In short, at this point, there simply is no conflict. Indeed, both may go forward from that point in total ignorance that the mistake had ever occurred and it will go with them to the grave. Both parties will proceed with their lives unmolested by the law while they remain in this state. The fact that the mistake becomes realised at a later date does not change the ex-ante­ position between the parties. Once again we can compare and contrast acts of physical invasion of which the parties are not immediately aware – particularly noise, light, odours and so on. Whether or not these are aggressive depends upon the plaintiff enforcing his rights. If he does not so within a certain period of time then it demonstrates that there was no genuine conflict and the courts may grant an easement title to the defendant to continue the “invasive” act. Similar considerations may apply here. If the plaintiff does not take steps to enforce his rights and demonstrate his realisation of the mistake then it proves that there is no substance to the conflict and after that time full title to the mistakenly paid property may pass to the defendant. Third and finally, we must also remember the libertarian principle that each individual person is responsible for his/her own property and for those acts that he initiates with it. This includes ensuring that it does not aggress against any other individual but it also means that you are responsible for your own mistakes with your property. Whatever you do, whether you produce it, consume it, destroy it, trade it, you cannot compel others to pay you for losses arising from any mistaken appreciation of carrying out these actions. If you cannot hold anyone responsible for your unilateral mistakes with your property then it follows that you should not, as a plaintiff, hold them responsible when the mistake is bilateral and wholly of your origination. Indeed, “mistake” itself is a very broad category and can involve anything from hitting an incorrect digit on a keyboard all the way to having a complete misunderstanding about the market environment for a particular business venture. Your losses in both instances are “mistakes” yet we would never suggest that a loss making businessman is not responsible for his losses; in turn, he should also be responsible when he makes an error when transferring a payment. Such mistakes are also a natural part of life – not only through absent-mindedness, but misinformation, misunderstanding and also where payments are initiated before a change in circumstances becomes apparent. And as we said in our discussion on liability for wrongs, the responsibility for these events remains with the property owner. In short, if you throw your sheep to the wolves, do not automatically expect that you will be able to get it back! At the very least we can say that this defence is consistent with the approaches towards aggression we have discussed previously.

What is the extent of this defence? Much of this question is likely to depend on whether the courts vest in the plaintiff a proprietary title over the mistakenly transferred property or merely a personal one. If it is a personal one – as in the case of fungible, unsegregated goods such as money – the defendant is likely to be liable to make the repayment even if he transferred the very notes paid over to him in error out of his possession. The strongest likely defence in this instance will be that of “change of position” – where the defendant can adduce evidence that he innocently changed his financial plans as a result of the mistaken payment, assuming that he had more funds than he thought he did. This has occurred in cases where banks have mistakenly paid sums into the wrong bank account. Genuinely assuming that they had more money than they thought, the recipients proceeded to increase their spending. Should such a change of plans be evidenced then the banks should forfeit the loss. On the other hand, if the title is proprietary then the plaintiff’s claim follows the particular piece of transferred property. Anything that the defendant does to the property before the mistake is realised the plaintiff will have to live with – if this includes alteration or degradation then he will receive it back in its altered and degraded state. If it is transferred out of the defendant’s hands to a bona fide third party the plaintiff may have to forfeit the property entirely.

Finally we can compare and contrast the situation of a mistaken payment with that of the transfer of sums of money in advance for the performance of a service or in exchange for another good. Here, a normative title over the money remains in the hands of the transferor at all times. Although the act of aggression only occurs once the defendant fails to perform his half of the bargain, this does not mean he can  invoke any defence if he trades or otherwise disposes of the money before that time. For here, the parties are aware of the property distribution between themselves and will very much be aware of a conflict should the defendant abscond with the money. On the other hand, if we have the case of A paying in money in advance mistakenly believing that the contract is for a car whereas B believes that the contract is for a van (and B delivers the van) the mistake of A’s will allow B to assert a defence against A’s claim for his money back if he dealt with it before the mistake was realised.

We must conclude this section by restating that all of this may be wrong and may be courts will hold defendants liable for knowing what they are receiving. Indeed in many cases the mistake may be mutual rather than wholly one-sided. However, it seems that, at least in the classic, core case of unjust enrichment the approach outlined here is the most consistent with libertarian principles. Finally, of course, parties may choose to vary their respective liability for an unjust enrichment by contract – for example if an existing customer makes an overpayment, the contract may specify a procedure for returning these funds or for allocating them towards future services.

Restrictive Transfers and Perpetuities

One further interesting topic is how restrictive transfers of property would be handled by a libertarian legal system. A restrictive transfer is any transfer that does not vest ownership of the property absolutely in the transferee. For example, A transfers the ownership of a car to B providing that B uses it only to travel to or from work; C transfers to D a house provided that he lets Mrs E, an elderly widow, have residence for life; F transfers a strip of land to G provided that G permits a right of way to the owner of the neighbouring land and the latter’s successors in title. All of these cases vest in someone other than the owner a residual title to the property that may be enforced under the terms of the transfer. Usually the transferee will have paid a lower purchase price than he would have done for outright title – after all, you would not pay the same price for a house with a restrictive covenant than you would for a house that confers upon you the right to do whatever you liked6. Hence he is not paying for a full transfer of title. In simple cases of restriction such as the doing or not doing something on a property then this residual title will remain with the transferor. Should the transferee proceed to carry out the prohibited act he has now violated the transferor’s residual title and the latter may sue. In cases where the contract confers a benefit upon a third party – e.g. the widow who may stay in residence for life or the neighbouring property that is granted a right of way – it is the third party who holds the title.

This brings us to the question of wills, bequests and trusts that are set up in apparent perpetuity for the benefit of certain beneficiaries or to carry out certain purposes. For example, a person may decide to bequeath all of his wealth to his eldest son, provided that the latter bequeaths it to his eldest son and then to the latter’s eldest son and so on forever. Or a person may stipulate that he will transfer land provided that neither the transferee nor his successors in title ever build on the land for the rest of eternity, even after the transferor is long dead. In all of these cases can the so-called “dead hand” of the settlor command rights and obligations over property for the remainder of time? Our contemporary legal systems have invoked perpetuity rules in order to prevent property from being tied up unreasonably into the distant future. Usually the interests bequeathed by all such bequests or transfers must vest in the beneficiaries within a period of “lives in being” plus twenty-one years. Hence, inserted into bequests are bizarre “Victoria” or “Kennedy” clauses stipulating that the directions for the property will remain for as long as the lifespan of the youngest living descendant of Queen Victoria (or of Joseph P Kennedy) plus a period of twenty-one years. After that time any specified interest in the bequest is invalid and the property vests absolutely in the last, valid beneficiary.

Libertarian law has no need for such an absurd and artificial rule. All rights and obligations belong to living, individual human beings and the courts will not enforce a stipulation laid down long ago by a deceased person. How then are directions stipulated in wills or bequests enforced beyond the lifetime of the settlor? The answer, once again, is to look to the residual title of the transferor. When he dies, this title will be inherited by his heirs. The latter then have the choice to continue to enforce the restriction or to relinquish it. For example, if a person bequeaths money to a hospital for the sole purpose of providing care to the terminally ill, the restriction vests in the transferor a residual title to enforce that restriction. While the transferor is still alive he is likely to enforce it, of course. When he dies, however, that title passes to his heir who may decide to continue to enforce it or may negotiate with the hospital for its relinquishment. Should he choose to continue it – perhaps out of respect for the original transferor – it will then pass to his heirs, and so on. With a property restriction that, say, confers a right of way upon the owner of a neighbouring property and his successors in title, exactly the same kind of situation occurs. If the succeeding beneficiaries of the right of way down the generations wish to continue to benefit then they will proceed to enforce the right. If not then then they will arrange for its relinquishment (or, more likely, the beneficiary will sell the right to the owner of the burdened property and the latter will then own the property outright). As long as the heirs continue to enforce the residual title then the desire to use that property in the manner stipulated by the original transferor is not the desire of some long dead settlor but is, rather, that of real, living human beings. There is, therefore, no distinct problem of perpetuities in a libertarian legal order. In any case, as time moves on certain restrictions may become forgotten and unexercised. Succeeding property owners of land that benefits from a right of way over adjoining land may, after a few generations, be completely unaware of that right of way and will not use it. Indeed the owner of the burdened property may, in the same state of ignorance, block access to the right of way with no alarm from its supposed beneficiaries. In this case, the courts may take this as evidence of abandonment of the title and full, beneficial use of the restricted property reverts to its owner. This is a similar approach to what courts are likely to do when determining whether there has been an aggression action against property in the first place – if the right was not exercised for a period of time then it demonstrates that the actors have no conflict in their minds and the defendant’s act, while physical in nature, generated no substantive invasion of rights. Hence we should also not have any problem of people “digging up” ancient documents, discovering long forgotten titles and then suddenly demanding their enforcement.

Finally, we must also remember the libertarian devotion to the market as opposed to the force of law that is the way of the statist. If people wish to donate their wealth to good causes or for specific purposes after they die and they wish this to be for at least a significant period in the future then suppliers of this need will be hot on their tail. Companies could offer to receive an individual’s money upon that person’s death and devote it to whichever purpose that individual wished. Legally, title to the property vests in the company absolutely but the discipline of the marketplace will ensure that they do not misuse it – if they do, people will, in the future, turn to more reliable competitors to whom to make their bequests and the abusive company will go bankrupt.

A Final Map of Libertarian Law

Having concluded our survey of causative events of legal liability in a libertarian legal system, we are now in a position to sketch an outline of the map of libertarian law and it categories.

There will be specific areas of the law devoted to determining what the property rights between the parties are, based upon libertarian principles. These are, namely:

  • The law of self-ownership;
  • The law of original appropriation;
  • The law of contract;
  • The law of unjust enrichment;

We might also include in this list the law of trusts although, as we indicated above, a trust is a property mechanism that results from various events and does not necessarily sit neatly in the above list. There might also be specific areas of the law devoted to incorporated associations such as companies.

All of these categories of law that determine the property distribution between the parties then feed into the central area of law which is the law of wrongs (torts and crimes). The previous categories having established what the property rights are, this area of the law determines whether there was an aggression against that property as we outlined in part four. Notice that there is no separate procedure for criminal and tortious acts as there is in our contemporary legal systems – the investigation of aggression is a unified whole and proceeds in one direction; the distinction between crime and tort is only one question to be examined in this process.

These areas mark the extent of that which we have investigated thus far. There will also be specific areas of the law that determine appropriate remedies for an aggression against property, part of which, in addition to theories of compensation and restitution, will have to examine libertarian theories of punishment and the viability of introducing punishment as a response to an invasion against property.

We can conclude by noting that nothing in this brief sketch includes any mention of “public law” or laws that apply to state, government, administrative or statutory bodies. All law in a libertarian society is “private law”; all legal rights and obligations exist between individual human beings and all of this law rests upon the same principles that are binding upon everyone regardless of their societal status and function. No individual human will be either privileged or persecuted by a libertarian legal system.

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1However, the precise causative events that give rise to some of these trusts appear relatively unclear in the case law, probably because trusts were developed in Equity which was based on much more vague and loose principles than the common law. “Unconscionable behaviour” seems to be a favourite phrase that courts use to justify the imposition of a constructive trust.

2None of this terminology need necessarily be used in a libertarian legal system – we are using it here simply for clarity.

3Actually, the bottle was not purchased by the plaintiff but by her friend who was accompanying her, but we will remove this complication for the sake of simplicity

4This may sound similar to the “absence of basis” approach of contemporary legal systems, but whereas this concept is vague and unanchored in the crucial libertarian concept of property, our doctrine is certain – either there is a “mistaken” transfer or there is a valid declaration of transfer. Only one or the other can occur and they are mutually exclusive.

5Considerations as to whether a defendant “should” have made himself aware of the mistake are likely to be irrelevant – a court cannot force an individual or entity to look after its financial or proprietary affairs with any particular degree of care. Other, extra-legal considerations are likely to bring this about – businesses will want to keep accurate records in order to keep customers satisfied by stating accurately the contractual relations and the accounts between them.

6In some circumstances, however, such a covenant may serve to increase the value of a property. If, for example, the covenant may apply to all properties in, say, a housing development programme and will be designed to restrict and curtail certain activities in order to give a neighbourhood a certain quality and attractiveness.